What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-03-01 · 232 added, 246 removed, 528 unchanged (48% of the section changed)

16 unchanged sentences

Accordingly, the consolidated financial statements reflect the results of the Vontier business as a discontinued operation for all periods presented.

Table of Conten t s

Fortive is a multinational business with global operations with approximately 46% of our sales derived from customers outside the United States in 2022.

7 unchanged sentences

We are making significant investments, organically and through acquisitions, to address technological change in the markets we serve and to improve our manufacturing, research and development, and customer-facing resources in order to be responsive to our customers throughout the world.

Russia Ukraine Conflict

In February 2022, Russian forces invaded Ukraine (“Russia Ukraine Conflict”) resulting in broad economic sanctions being imposed on Russia.

In the second quarter of 2022, the Company exited business operations in Russia, other than for ASP’s sterilization products, which are exempt from international sanctions as humanitarian products.

Our business in Russia and Ukraine accounted for less than 1.0% of total revenue and less than 0.2% of total assets for the year ended December 31, 2021.

During the year ended December 31, 2022, the Company recorded pre-tax charges of $17.9 million, primarily relating to the write-off of net assets, the write-off of the cumulative translation adjustment in earnings for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies.

These costs are identified as the “Russia exit and wind down costs” in the Consolidated Statements of Earnings.

Substantially all related liabilities were paid and settled during the year ended December 31, 2022.

Non-GAAP Measures

In this report, references to sales from existing businesses refer to sales from operations calculated according to generally accepted accounting principles in the United States (“GAAP”) but excluding (1) the impact from acquired businesses and (2) the impact of currency translation.

References to sales attributable to acquisitions or acquired businesses refer to GAAP sales from acquired businesses recorded prior to the first anniversary of the acquisition and the effect of purchase accounting adjustments of the acquisition less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture.

adjustments, less the amount of sales attributable to certain divested businesses or product lines not considered discontinued operations prior to the first anniversary of the divestiture.

The portion of sales attributable to the impact of currency translation is calculated as the difference between (a) the period-to-period change in sales (excluding sales impact from acquired businesses) and (b) the period-to-period change in sales (excluding sales impact from acquired businesses) after applying the current period foreign exchange rates to the prior year period.

4 unchanged sentences

Management believes the exclusion of the effect of acquisitions and divestitures and currency translation may facilitate the assessment of underlying business trends and may assist in comparisons of long-term performance.

References to sales volume refer to the impact of both price and unit sales.

References to sales volume from existing businesses refer to the impact of both price and unit sales.

Business Performance and Outlook

Business Performance

Overall demand for our products and services accelerated during 2021, with aggregate year-over-year sales increasing by 13.4%.

The increase was largely driven by demand from our existing businesses, which increased by 9.5% on broad-based momentum and focused execution across our portfolio, most notably within our short-cycle industrial and software as a service (“SaaS”) businesses.

Geographically, year-over-year sales from existing businesses in developed markets increased at a high single digit rate driven by high single digit increases in North America and Western Europe.

Year-over-year sales from existing businesses in high

Table of Conten t s

growth markets increased at a mid-teens rate driven by mid-twenties increases in Latin America and mid-teens increases in China.

We experienced robust demand for our products and service during 2022 and despite challenging macroeconomic conditions and global supply chain constraints, aggregate year-over-year sales increased 10.9%, with contributions from both existing and newly acquired businesses, all partially offset by unfavorable changes in foreign exchange rates.

Year-over-year sales from existing businesses increased 10.1%, reflecting strong end-market demand for our offerings as well as focused execution on product and service delivery, and favorable pricing.

Geographically, year-over-year sales from existing businesses in developed markets increased low double-digits, with low double-digit growth in both North America and Western Europe, respectively.

Year-over-year sales from existing businesses in high growth markets increased low double-digits driven by low twenties growth in Latin America and low double-digit growth in China.

In addition to increased demand, year-over-year price increases contributed 5.2% to sales growth during 2022, as compared to 2021, and is reflected as a component of the change in sales from existing businesses.

During 2021, widespread supply chain challenges emerged due to labor, raw material, and component shortages, as well as logistics issues, across multiple industries, resulting in increased material and shipping costs.

We worked to mitigate the impact of the supply chain challenges by implementing solutions to support near-term operations, executing on countermeasures for material shortages, and managing production, all of which contributed to year-over-year revenue growth and margin expansion in 2021.

However, due to the magnitude of the supply chain and logistics issues impacting the economy broadly and those related to electronic components in particular, demand for our products outpaced our ability to supply, and our backlog grew in the second half of 2021 .

COVID-19 continues to have an impact on our business and results.

In 2020, we experienced significant declines in demand as a result of broad disruption in the global economy.

In 2021, we experienced a rebound of demand but also encountered operating challenges related to logistics, material availability and higher levels of absenteeism.

We expect that the pandemic and its impact on global commerce will remain uncertain and we will continue to deploy FBS to countermeasure the challenges we encounter.

We anticipate the strong demand for our products and services will continue into 2022 with year-over-year revenue expected to increase between 9.0% and 12.0% for the full year, including growth from existing businesses of between 5.5% and 8.5% on anticipated strong demand in key end markets and continued deployment of FBS to drive share gains and innovation.

This outlook is subject to various assumptions and risks, including but not limited to, the magnitude of the impact of the COVID-19 pandemic on macroeconomic conditions, continued strength of key end markets, elective surgery rates, the availability of electronic components, our ability to convert backlog, sustain our workforce levels and maintain manufacturing capacity.

We anticipate that supply chain and inflationary pressures will persist throughout 2022 and that although our backlog may decline compared to 2021, it may remain elevated compared to historical levels.

During 2022, price increases exceeded inflationary increases that we experienced on purchased materials.

The strengthening of the U.S.

dollar relative to other currencies reduced our sales by 3.1% during 2022, as compared to 2021 and may continue to impact our results in future periods.

Widespread supply chain challenges and inflationary pressures persisted throughout the year resulting in higher costs in each of our three segments.

We continue to apply FBS to help mitigate the impact of these challenges and to serve our customers.

The COVID-19 pandemic, including the mitigation efforts and the accelerated spread of the virus in China, continues to adversely impact our results and creates operating challenges with logistics, material availability and absenteeism.

We anticipate that the disruptions caused by the pandemic will continue to impact future periods.

Despite an evolving macro environment and continued geopolitical conflict, we anticipate increasing demand for our offerings will continue and are projecting full year sales to grow on a year-over-year basis by approximately 2.0%-4.5% with year-over-year growth from existing businesses of approximately 3.0%-5.5%.

We expect that foreign exchange rates will remain volatile in 2023 and could create unfavorable results relative to foreign exchange rates in 2022.

Additionally, this outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chains including the availability of electronic components, inflationary pressures, the impact of the COVID-19 pandemic, the impact of the Russia Ukraine Conflict, market conditions in key end product segments, elective surgery rates, and the impact of energy disruption in Europe.

We will continue to deploy FBS to actively manage production challenges, collaborate with customers and suppliers to minimize disruptions and utilize price increases and other countermeasures to offset inflationary pressures.

We are monitoring the risks of new COVID-19 variants which may be more contagious or severe, or less responsive to treatment and vaccines, and may impact the rate that virus control measures ease or become more restrictive, which could impact our future results.

We are monitoring matters of international trade, monetary and fiscal policies, relations between the U.S.

and China, as well as evaluating the impacts of proposed legislation and various investment and taxation policy initiatives being debated in the United States and by the Organisation for Economic Co-operation and Development (“OECD”).

As of the filing date of this report, we are, however, unable to quantify the anticipated impact of these matters on our financial results.

Completed Divestitures, Acquisitions, and Business Combinations

In addition, we expect to execute discrete restructuring plans as well as our general, cost-saving measures to prepare for, and respond to, any material adverse global economic trends that may develop.

We continue to monitor the macroeconomic and geopolitical conditions which may impact our business, including spread of the COVID-19 virus, continued geopolitical conflict, global inflation, potential adverse global economic trends and sentiments, monetary and fiscal policies, international trade and relations between the U.S., China and other nations, and investment and taxation policy initiatives being considered in the United States and by the Organization for Economic Co-operation and Development (“OECD”).

Acquisitions and Divestitures

Therapy Physics Divestiture

On September 30, 2022, we completed the sale of our Therapy Physics product line, which was reported in our Advanced Healthcare Solutions segment, to an unrelated third party for cash consideration of $9.6 million.

As a result of the sale, during the year ended December 31, 2022, we recorded a net realized pre-tax gain totaling $0.5 million, net of transaction costs, which is recorded as “Other non-operating expense, net” in the Consolidated Statements of Earnings.

The divested business accounted for less than 1.0% of total revenue and less than 0.3% of total assets for the year ended December 31, 2021.

The divestiture of this product line did not represent a strategic shift with a major effect on the Company’s operations and financial results and therefore the divested product line is not reported as a discontinued operation.

ServiceChannel Acquisition

2 unchanged sentences

The acquisition of ServiceChannel broadens our offering of software-enabled solutions for the facility and asset lifecycle workflow.

The total consideration paid was approximately $1.2 billion, net of acquired cash, and includes approximately $28 million of deferred compensation consideration that is being recognized ratably over a twelve month service period.

The total consideration paid was approximately $1.2 billion, net of acquired cash, and includes approximately $28 million of deferred compensation consideration was being recognized ratably over a twelve-month service period.

The ServiceChannel acquisition was primarily financed with available cash and proceeds from our financing activities.

We preliminarily recorded approximately $873 million of goodwill related to the ServiceChannel acquisition, which is not tax deductible.

We recorded approximately $868 million of goodwill related to the ServiceChannel acquisition, which is not tax deductible.

ServiceChannel had revenue in 2020 of approximately $70 million and is an operating company within our Intelligent Operating Solutions segment.

3 unchanged sentences

The acquisition of Provation extends our digital offering and software capabilities in the healthcare space.

The total consideration paid was approximately $1.4 billion, net of acquired cash

Table of Conten t s

and was primarily financed with proceeds from our financing activities and available cash.

We preliminarily recorded $970 million of goodwill related to the acquisition, which is not tax deductible.

The total consideration paid was approximately $1.4 billion, net of acquired cash and was primarily financed with proceeds from our financing activities and available cash.

We recorded $972 million of goodwill related to the acquisition, which is not tax deductible.

Provation had revenue in 2020 of approximately $90 million and is an operating company within our Advanced Healthcare Solutions segment.

10 unchanged sentences

We recorded a loss on extinguishment of the debt included in the Debt-for-Equity Exchange of $94.4 million in the year ended December 31, 2021.

Additionally, during the first quarter of 2021 we recognized a gain of $57.0 million related to the subsequent change in the fair value of the Retained Vontier Shares.

In preparation for and executing the Separation, the Company incurred $84 million and $35 million in Vontier stand-up and separation-related transaction costs during the years ended December 31, 2020 and 2019, respectively, which have been reclassified to discontinued operations in the accompanying consolidated financial statements.

3 unchanged sentences

As of December 31, 2021, all responsibilities and obligations under all agreements have been materially settled.

Advanced Sterilization Products Acquisition

On April 1, 2019 (the “Principal Closing Date”), we acquired the Advanced Sterilization Products business (“ASP”) of Johnson & Johnson, a New Jersey corporation (“Johnson & Johnson”) for an aggregate purchase price of $2.7 billion (the “Transaction”), subject to certain post-closing adjustments set forth in a Stock and Asset Purchase Agreement, dated effective as of June 6, 2018, between the Company and Ethicon, Inc., a New Jersey corporation (“Ethicon”) and a wholly owned subsidiary of Johnson & Johnson.

ASP engages in the research, development, manufacture, marketing, distribution, and sale of low-temperature terminal sterilization and high-level disinfection products.

On the Principal Closing Date, we paid $2.7 billion in cash and obtained the transferred assets and assumed liabilities in 20 countries (“Principal Countries”), general patent and trademark assignments, and all transferred equity interests in ASP.

ASP has operations in an additional 39 countries (“Non-Principal Countries”).

The transferred assets and liabilities associated with these operations close when requirements of country-specific agreements or regulatory approvals are satisfied.

Table of Conten t s

The $2.7 billion purchase price was paid in exchange for ASP’s businesses in both Principal and Non-Principal Countries.

As of December 31, 2021 we have closed all Principal Countries and all Non-Principal Countries.

All of the provisional goodwill associated with the Transaction is included in goodwill in our Advanced Healthcare Solutions segment at December 31, 2021, and the majority of the provisional goodwill is tax deductible.

In addition, the Company entered into a transition services agreement with Johnson & Johnson for certain administrative and operational services (“TSA”) with Principal Countries and distribution agreements in the Non-Principal Countries.

Under the distribution agreements, ASP sells finished goods to Ethicon at prices agreed by the parties.

ASP recognizes these sales as revenue when the conditions for revenue recognition are met.

Following the sale of finished goods by ASP, Ethicon obtains title of the finished goods, has full authority to sell and market the finished goods to end customers as it sees fit, and retains any revenue and profit from sale.

As of December 31, 2021, ASP had exited the TSAs and substantially all of the distribution agreements.

Other Acquisition-related Matters

On April 1, 2019 (the “Principal Closing Date”), we acquired the advanced sterilization products business (“ASP”) of Johnson & Johnson, a New Jersey corporation.

Prior to our acquisition of ASP, Johnson & Johnson received a Civil Investigative Demand from the United States Department of Justice (“DOJ”) regarding a False Claims Act investigation arising from a whistleblower lawsuit pertaining to the pricing, quality, marketing, and promotion of certain of ASP’s products.

2 unchanged sentences

In the second quarter of 2021, following the unsealing of the whistleblower lawsuit and DOJ’s declination to intervene in the litigation, the plaintiff dismissed the whistleblower lawsuit.

Based on these developments, management derecognized the litigation liability from our Consolidated Balance Sheet and recorded the gain on litigation resolution of $26 million within Non-operating income (expense), net in our Consolidated Statements of Earnings during the year ended December 31, 2021.

Other Acquisitions and Investments

In addition to the acquisition of ASP, during 2019, we acquired Intelex Technologies and Pruftechnik, both of which complement existing businesses in our Intelligent Operation Solutions segment, and Censis Technologies within our Advanced Healthcare Solutions segment, for total consideration of $1.2 billion in cash, net of cash acquired.

We recorded an aggregate of $781 million of goodwill related to these acquisitions.

At the closing date of the purchase of Censis Technologies, a contractual liability existed which management allocated to the purchase price and was recorded in our Consolidated Balance Sheet.

Based on these developments, management derecognized the litigation liability from our Consolidated Balance Sheet and recorded a Gain on litigation resolution of $26 million within Non-operating income (expense), net in our Consolidated Statements of Earnings during the year ended December 31, 2021.

During 2019, we acquired Censis Technologies (“Censis”).

At the closing date of the purchase of Censis, a contractual liability existed which management allocated to the purchase price and was recorded in our Consolidated Balance Sheet.

During the fourth quarter of 2021, that liability was discharged for an amount less than the amount allocated, and the excess was recorded as a Gain on litigation resolution of $3.9 million within Non-operating income (expense), net in our Consolidated Statements of Earnings during the year ended December 31, 2021.

Combination of the Tektronix Video Business with Telestream

On July 20, 2019, we completed the combination of the Tektronix Video test and monitoring equipment business (“Tektronix Video Business”) with Telestream, LLC (the “Combined Business”), a portfolio company of Genstar Capital LLC.

We recognized a pretax gain of $41 million upon the combination, and hold a 33% equity stake in the Combined Business.

This transaction did not meet the criteria for discontinued operations reporting, and therefore the operating results of the Tektronix Video Business prior to the combination with Telestream are included in continuing operations for all periods presented.

Additionally, the loss from our equity investment in the Combined Business is included in Other non-operating expenses, net in the accompanying Consolidated Statement of Earnings.

Refer to Note 4 to our consolidated financial statements for additional information.

RESULTS OF OPERATIONS

6 unchanged sentences

Refer to Intelligent Operating Solutions, Precision Technologies and Advanced Healthcare Solutions sections below for further discussion of year-over-year sales growth.

Table of Conten t s

Operating Profit Margins

Operating profit margin was 15.5% for the year ended December 31, 2021, an increase of 390 basis points as compared to 11.6% in 2020, with year-over-year operating profit margin comparisons impacted by:

Operating profit margins were 16.9% for the year ended December 31, 2022, an increase of 140 basis points as compared to 15.5% in 2021 with year-over-year operating profit margin comparisons impacted by:

• Year-over-year increase in price and sales volumes from existing businesses and gains from productivity measures, which were partially offset by higher year-over-year employee compensation, freight, logistics and material costs and unfavorable foreign exchange rates — favorable 120 basis points

• The year-over-year effect of amortization from existing businesses — favorable 65 basis points

• The year-over-year net effect of acquisition-related transaction costs which were lower during 2022 — favorable 65 basis points

• The year-over-year net effect of acquired businesses, including amortization, and acquisition-related fair value adjustments — unfavorable 100 basis points

• The year-over-year effect of significant restructuring costs which were lower during 2022 — favorable 20 basis points

• Russia exit and wind down costs that were incurred during 2022 — unfavorable 30 basis points

Operating profit margins were 15.5% for the year ended December 31, 2021, an increase of 390 basis points as compared to 11.6% in 2020 with year-over-year operating profit margin comparisons impacted by:

• Higher year-over-year sales volumes and price increases from existing businesses, incremental year-over-year cost savings associated with restructuring and productivity improvement initiatives and favorable sales mix, which were partially offset by higher year-over-year freight and logistics costs, employee compensation and SG&A costs, which were reduced in 2020 to better align costs with demand in response to the pandemic — favorable 240 basis points

3 unchanged sentences

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were higher in 2021 than those recognized in 2020 — unfavorable 10 basis points

Operating profit margins were 11.6% for the year ended December 31, 2020, an increase of 190 basis points as compared to 9.7% in 2019 with year-over-year operating profit margin comparisons impacted by:

• Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent, lower year-over-year material costs and incremental year-over-year cost savings associated with productivity improvement initiatives, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 50 basis points

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue and inventory which were less in 2020 than the fair value adjustments recognized in 2019 — favorable 30 basis points

• The year-over-year effect of acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP in 2019 were greater than the costs recognized in the comparable period in 2020 — favorable 90 basis points

• The year-over-year effect of amortization from existing businesses — favorable 10 basis points

• The incremental year-over-year effect of restructuring actions — favorable 10 basis points

Table of Conten t s

Business Segments and Geographic Area Results

11 unchanged sentences

INTELLIGENT OPERATING SOLUTIONS

Our Intelligent Operating Solutions segment provides leading workflow solutions to accelerate industrial and facility reliability and performance, as well as compliance and safety across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others.

The businesses in our Intelligent Operating Solutions segment provide differentiated instrumentation and sensors, software and services to address our customers’ toughest workflow challenges.

Our Intelligent Operating Solutions segment provides advanced instrumentation, software and services to tens of thousands of customers enabling their mission-critical workflows.

These offerings include electrical test & measurement, facility and asset lifecycle software applications, connected worker safety and compliance solutions across a range of vertical end markets, including manufacturing, process industries, healthcare, utilities and power, communications and electronics, among others.

Intelligent Operating Solutions Selected Financial Data

15 unchanged sentences

2022 COMPARED TO 2021

Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions increased 10.7% in 2021 , as compared to 2020.

Year-over-year sales from existing businesses increased 12.0% in 2022, as compared to 2021.

The year-over-year increase was driven by price increases and continued strong demand for test and measurement instrumentation, gas detection offerings, and software and related services.

Geographically, sales from existing businesses in developed markets increased by low double-digits during 2022, driven by mid-teens growth in Western Europe and low double-digit growth in North America.

Sales in high growth markets increased by low double-digits during 2022, driven by high single-digits growth in China, low twenties growth in Latin America, and mid-teens growth in Other Asia.

Year-over-year price increases in our Intelligent Operating Solutions segment contributed 5.8% to sales growth in 2022, as compared to 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 230 basis points during 2022 as compared to 2021 with year-over-year operating profit margin comparisons impacted by:

• Year-over-year increase in price and sales volume from existing businesses and gains from productivity measures, partially offset by higher year-over-year freight, logistics and material costs and employee compensation costs, and growth investments in R&D, sales and marketing and unfavorable foreign exchange rates — favorable 230 basis points

• The year-over-year effect of amortization from existing businesses — favorable 90 basis points

• The year-over-year effect of acquisition-related transaction costs which were lower in 2022 than those recognized in 2021 — favorable 70 basis points

• The year-over-year effect of acquired businesses, including amortization — unfavorable 190 basis points

• The year-over-year effect of significant restructuring costs which were less in 2022 than those recognized in 2021 — favorable 30 basis points

2021 COMPARED TO 2020

Year-over-year sales from existing businesses increased 10.7% in 2021, as compared to 2020.

The year-over-year increase was driven by broad-based increases in demand, particularly from our industrial channel partners, critical safety, facilities, and maintenance SaaS product offerings, and portable gas detection instruments, which were partially offset by a decrease in demand for our industrial imaging products, as demand for those products was elevated during the comparable period in 2020 for COVID-19 monitoring.

Table of Conten t s

Geographically, demand from existing businesses in our Intelligent Operating Solutions segment increased in both developed and high growth markets during 2021, driven by growth in every major geography and led by North America, Europe, China and Latin America.

6 unchanged sentences

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to deferred revenue — unfavorable 110 basis points

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Intelligent Operating Solutions declined 7.2% during the year ended December 31, 2020.

The results were driven by declines in demand for portable gas detection instruments, on-premise software license and professional service offerings, and demand from our industrial channel partners, all of which were impacted by COVID-19 in both direct and adjacent end markets.

Partially offsetting these declines was increased demand for our industrial imaging products and certain of our critical workflow, safety, and maintenance SaaS product offerings.

Despite the year-over-year declines in demand from our industrial channel partners, we realized sequential improvement in both the third and fourth quarters of 2020 from the low point in the second quarter of 2020.

Geographically, demand from existing businesses in Intelligent Operating Solutions decreased on a year-over-year basis in both developed and high-growth markets as growth in Asia, led by Japan and China, was more than offset by declines in North America, Western Europe, and Latin America.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases in the segment contributed 1.1% to sales growth during 2020 as compared to 2019.

Operating profit margin increased 170 basis points during 2020 as compared to 2019, with year-over-year operating profit margin comparisons impacted by:

• Operating expense savings from broad cost reduction efforts, price increases, lower year-over-year material costs and incremental year-over-year cost savings associated with productivity improvement initiatives, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 40 basis points

• The year-over-year effect of acquisition-related transaction costs, as the costs related to our acquisitions in 2020 were less than the costs recognized in the comparable period in 2019 — favorable 60 basis points

• The year-over-year dilutive effect of amortization from existing businesses — unfavorable 10 basis points

Table of Conten t s

PRECISION TECHNOLOGIES

Our Precision Technologies segment supplies instrumentation and sensing technologies to a broad set of vertical end markets, enabling our customers to accelerate the development, manufacture and launch of innovative products and solutions.

We provide our customers with electrical test and measurement instruments and services, energetic material devices, and a broad portfolio of sensor and control system solutions.

Our Precision Technologies segment helps solve tough technical challenges to speed breakthroughs in a wide range of applications, from food and beverage production and manufacturing to next-generation electric vehicles and clean energy, as our customers seek new test solutions to enable the electrification and connectivity of everything.

Our expertise in materials, methods and measurements are reflected in our electrical test & measurement, sensing and material technologies offered to a broad set of customers and vertical end markets, including industrial, power and energy, automotive, medical equipment, food and beverage, aerospace and defense, semiconductor, and other general industries.

Precision Technologies Selected Financial Data

15 unchanged sentences

2022 COMPARED TO 2021

Year-over-year sales of products and services from existing businesses of Precision Technologies increased 10.6% in 2021.

Year-over-year sales from existing businesses increased 13.2% in 2022.

The year-over-year results were driven by price increases, market growth and share gains in key verticals and improved production execution with our energetic materials products.

Geographically, sales from existing businesses in developed markets increased by low double-digits during 2022 driven by low double-digits growth in North America and mid-teens growth in Western Europe.

Sales in high growth markets increased by high teens during 2022 driven by low twenties growth in China.

Year-over-year price increases in our Precision Technologies segment contributed 7.0% to sales growth during 2022 as compared to 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin increased 200 basis points during 2022 as compared to 2021 with year-over-year operating profit margin comparisons impacted by:

• Higher year-over-year increases in price and volume, partially offset by higher material, freight and employee compensation costs and unfavorable exchange rates — favorable 170 basis points

• The year-over-year effect of amortization from existing businesses — favorable 20 basis points

• The year-over-year effect of significant restructuring costs which were less in 2022 than those recognized in 2021 — favorable 10 basis points

2021 COMPARED TO 2020

Year-over-year sales from existing businesses increased 10.6% in 2021.

The year-over-year results were driven by broad-based demand for test and measurement instruments, increased demand for sensing technologies in the industrial and semiconductor end markets, and increased demand for energetic materials, which were partially offset by a decrease in demand in the medical end market for sensing devices that supported COVID-19 patient treatment efforts in the comparable periods of 2020.

5 unchanged sentences

• The year-over-year effect of restructuring actions which were less in 2021 than those recognized in 2020 — favorable 45 basis points

Table of Conten t s

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Precision Technologies declined 7.7% during 2020.

The year-over-year decline in demand was largely driven by the impacts of COVID-19 in both direct and adjacent end markets, specifically for test and measurement instruments, declines in demand for sensors in the industrial end market, and a decline in shipments of our energetic materials, which was partially offset by increased demand in the medical end market for ventilator components and for critical environments supporting COVID-19 patient treatment efforts.

We have realized sequential improvement in demand from the low point in the second quarter of 2020, and returned to sales growth from existing businesses in the fourth quarter of 2020.

Geographically, demand from existing businesses in Precision Technologies decreased on a year-over-year basis in both developed and high-growth markets, as growth in Latin America was more than offset by declines in North America, Asia, and Western Europe.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 1.8% to sales growth in the segment during 2020 as compared to 2019.

Operating profit margin increased 160 basis points during 2020 as compared to 2019 with year-over-year operating profit margin comparisons impacted by:

• Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent lower year-over-year material costs, incremental year-over-year cost savings associated with productivity improvement initiatives, and foreign currency exchange rates, which were partially offset by lower year-over-year sales volumes from existing businesses — favorable 120 basis points

• The incremental year-over-year effect of restructuring actions — favorable 50 basis points

• The year-over-year effect of amortization from existing businesses — favorable 10 basis points

• The year-over-year dilutive effect of the combination of the Tektronix video business with Telestream — unfavorable 20 basis points

ADVANCED HEALTHCARE SOLUTIONS

Our Advanced Healthcare Solutions segment supplies critical workflow solutions to hospitals and other healthcare customers, enabling safer, more efficient, and higher quality healthcare.

Through the Advanced Healthcare Solutions segment, we provide hardware, consumables, software and services that optimize our customers’ most critical workflows, including instrument sterilization and device reprocessing, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation safety monitoring, end-to-end clinical productivity solutions and asset management.

Our Advanced Healthcare Solutions segment supplies critical workflow solutions enabling healthcare providers to deliver exceptional patient care more efficiently.

Our offerings include instrument sterilization solutions, instrument tracking, cell therapy equipment design and manufacturing, biomedical test tools, radiation detection and safety monitoring, and end-to-end clinical productivity software and solutions.

Our healthcare offerings help ensure critical safety standards are met, instruments and operating rooms are working at peak performance, and complex procedures are followed accurately in these mission-critical healthcare environments.

Advanced Healthcare Solutions Selected Financial Data

14 unchanged sentences

Currency exchange rates (Non-GAAP) (3.6) % 1.2 %

Table of Conten t s

2022 COMPARED TO 2021

Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 6.0% during 2021, driven by increased demand for sterilization capital equipment and consumables, radiation safety monitoring, cell therapy equipment design and manufacturing, and surgical instrument tracking SaaS products.

Year-over-year sales from existing businesses increased 2.1% during 2022, primarily driven by price increases and a slight increase in volume on increased demand for sterilization products and radiation monitoring, partially offset by declines in design services, hardware offerings and quality assurance equipment.

Geographically, sales from existing businesses in developed markets increased by low single-digits during 2022 driven by low single-digit growth in North America and a slight increase in Western Europe.

In high growth markets, sales growth from existing businesses was down slightly, with mid-single-digits decline in China and high teens decline in Middle East and Africa, offset by low twenties growth in Latin America.

Year-over-year price increases in our Advanced Healthcare Solutions segment contributed 1.7% to sales growth during 2022, as compared to 2021, and is reflected as a component of the change in sales from existing businesses.

Operating profit margin remained flat during 2022 as compared to 2021 with year-over-year operating profit margin comparisons impacted by:

• Year-over-year sales increases in price and volume from existing businesses were more than offset by increasing freight, logistics and employee compensation costs, reserves for uncollectible receivables and unfavorable foreign exchange rates — unfavorable 170 basis points

• The year-over-year effect of amortization from existing businesses — favorable 75 basis points

• The year-over-year net effect of acquisition-related transaction costs which were less than those recognized in the comparable period in 2021 — favorable 175 basis points

• The year-over-year effect of acquired businesses, including amortization, and acquisition-related fair value adjustments to inventory which were more in 2022 than those recognized in 2021 — unfavorable 110 basis points

• The year-over-year effect of significant restructuring costs which were less in 2022 than those recognized in 2021 — favorable 30 basis points

2021 COMPARED TO 2020

Year-over-year sales from existing businesses increased 6.0% during 2021, driven by increased demand for sterilization capital equipment and consumables, radiation safety monitoring, cell therapy equipment design and manufacturing, and surgical instrument tracking SaaS products.

Geographically, demand from existing businesses in Advanced Healthcare Solutions increased in both developed and high growth markets during 2021, driven by growth in North America and Asia, which was partially offset by declines in Europe on non-recurring diagnostic equipment design services performed in 2020 and associated with COVID-19 pandemic response.

6 unchanged sentences

• The year-over-year effect of restructuring actions which were less in 2021 than those recognized in 2020 — favorable 10 basis points

2020 COMPARED TO 2019

Year-over-year sales of products and services from existing businesses of Advanced Healthcare Solutions increased 0.6% during 2020 as increased demand for cell therapy equipment design and manufacturing, radiation safety monitoring, and surgical instrument tracking SaaS products was mostly offset by a decrease in demand for consumables from our ASP business driven by a decline in elective surgical procedure volumes.

Year-over-year demand for sterilization capital equipment increased slightly during 2020 as compared to 2019.

Several of our Advanced Healthcare Solutions businesses are impacted by elective surgical procedure volumes, and year-over-year, elective surgical procedure volumes declined at a high-single digit rate across most major geographic markets, at rates that varied throughout the year based on COVID-19 patient hospitalizations and virus control measures in place.

Geographically, demand from existing businesses in Advanced Healthcare Solutions increased in developed markets and decreased in high-growth markets, as growth in Western Europe and China was more than offset by declines in North America, the Middle East, and Japan.

Price increases are reflected as a component of the change in sales from existing businesses, and year-over-year price increases contributed 0.8% to sales growth during 2020 as compared to 2019.

Operating profit margin increased 860 basis points during 2020 as compared to 2019 with year-over-year operating profit margin comparisons impacted by:

• Operating expense savings from broad cost reduction efforts and price increases, and to a lesser extent, lower year-over-year material costs, incremental year-over-year cost savings associated with productivity improvement initiatives, and foreign currency exchange rates, that more than offset lower year-over-year sales volumes from existing businesses and an unfavorable sales mix — favorable 40 basis points

Table of Conten t s

• The year-over-year effect of amortization from existing businesses – favorable 250 basis points

• The incremental year-over-year effect of acquired businesses, including amortization and acquisition-related fair value adjustments to deferred revenue and inventory which were less in 2020 than in 2019 — favorable 160 basis points

• Acquisition-related transaction costs, as the costs related to our acquisition and integration of ASP and Censis in 2020 were less than the costs recognized in the comparable period in 2019 — favorable 450 basis points

• The incremental year-over-year net dilutive effect of restructuring actions — unfavorable 40 basis points

COST OF SALES AND GROSS PROFIT

5 unchanged sentences

Gross profit margin 57.7 % 57.2 % 56.3 %

The year-over-year increase in cost of sales during 2021, as compared to 2020, is due primarily to higher year-over-year sales volumes from existing businesses, incremental costs from our recently acquired businesses, increasing material, freight and logistics costs, and the impact of changes in foreign currency exchange rates, all of which were partially offset by lower operating costs and gains from productivity improvement initiatives.

The year-over-year increase in gross profit and gross profit margin during 2021 as compared to 2020 is due primarily to higher year-over-year sales volumes from existing businesses, sales volumes from our recent acquisitions, price increases, favorable sales mix, lower operating costs and gains from productivity improvements, all of which were partially offset by changes in foreign currency exchange rates and higher material, freight, and logistics costs.

The year-over-year decrease in cost of sales during 2020 as compared to 2019 is due primarily to lower year-over-year sales volumes from existing businesses, lower year-over-year material costs, year-over-year net cost savings associated with restructuring and productivity improvement initiatives, and changes in currency exchange rates, which were partially offset by incremental cost of sales from our recently acquired businesses.

The year-over-year increase in gross profit and gross profit margin during 2020 as compared to 2019 is due primarily to the favorable impacts of pricing improvements from existing businesses, incremental year-over-year net cost savings associated with restructuring and productivity improvement initiatives, material cost and supply chain improvement actions, and changes in currency exchange rates, which were partially offset by lower year-over-year sales volumes.

The year-over-year increase in gross profit during 2022 as compared to 2021, is due primarily to a year-over-year increase in sales volumes and price increases from existing and newly acquired business, which were partially offset by higher material, freight and employee compensation costs and the unfavorable impact of foreign currency exchange rates.

The year-over-year increase in gross profit during 2021 as compared to 2020 is due primarily to higher year-over-year sales volumes from existing businesses, sales volumes from our recent acquisitions, price increases, favorable sales mix, lower operating costs and gains from productivity improvements, all of which were partially offset by changes in foreign currency exchange rates and higher material, freight, and logistics costs.

OPERATING EXPENSES

4 unchanged sentences

Research and development (“R&D”) expenses 401.5 354.8 320.7

Russia exit and wind down costs 17.9 — —

SG&A as a % of sales 33.6 % 35.0 % 37.7 %

R&D as a % of sales 6.9 % 6.8 % 6.9 %

SG&A increased during 2022 as compared to 2021 due to higher intangible amortization and incremental expenses from our recent acquisitions and increased employee compensation expenses, customer acquisition and marketing costs, partially offset by the impact of changes in currency exchange rates.

On a year-over-year basis, SG&A represented as a percentage of sales decreased 140 basis points.

During 2022 we incurred higher amortization expense from our recent acquisitions, which was more than offset by leverage on SG&A costs, which grew at a slower rate than our sales.

SG&A expenses increased during 2021 as compared to 2020 due to higher intangible amortization and incremental expenses from our recent acquisitions, higher employee compensation costs and SG&A expenses at our existing businesses due to broad cost reduction efforts executed in 2020 to better align with reductions in demand, and the impact of changes in foreign currency exchange rates, all of which was partially offset by reductions in net acquisition-related costs and incremental savings associated with restructuring and productivity improvement initiatives .

On a year-over-year basis, SG&A expenses declined by 270 basis points, as a percentage of revenue, when compared to 2020, reflecting that demand for our products and services grew at a faster rate than expenses.

SG&A expenses increased during 2020 as compared to 2019 due primarily to higher intangible amortization and incremental expenses from our recently acquired businesses that were mostly offset by broad cost reduction efforts that reduced labor expenses to better align with reductions in demand during the second and third quarter of 2020, primarily through the use of furloughs and reductions in salaried compensation costs, as well as other reductions in discretionary spending.

Table of Conten t s

extent, year-over-year SG&A expenses were reduced by changes in foreign currency exchange rates and year-over-year net cost savings associated with restructuring and productivity improvement initiatives.

SG&A expenses as a percentage of sales were relatively consistent year-over-year.

R&D expenses, consisting principally of internal and contract engineering personnel costs, increased during 2022 as compared to 2021 due to incremental costs from our recent acquisitions, investments made in innovation and key initiatives and higher employee compensation costs.

On a year-over-year basis, R&D expenses as a percentage of sales increased 10 basis points in 2022 as compared to 2021, on our recent acquisitions, where R&D spending is higher as a percentage of sales than in existing businesses and leverage on R&D costs, which grew at a slower rate than our sales.

R&D expenses, consisting principally of internal and contract engineering personnel costs, increased during 2021 as compared to 2020 due to targeted investments in key growth initiatives and innovation.

On a year-over-year basis, R&D expenses as a percentage of sales decreased 10 basis points in 2021 as compared to 2020, reflecting demand for our products and services that grew at a faster rate than our investments in key growth initiatives and innovation.

R&D expenses (consisting principally of internal and contract engineering personnel costs) increased slightly during 2020 as compared to 2019 due to incremental expenses from recently acquired businesses.

On a year-over-year basis, R&D expenses as a percentage of sales decreased 10 basis points in 2020 as compared to 2019 as incremental sales from our recently acquired businesses increased at a faster rate than R&D investments.

RUSSIA EXIT AND WIND DOWN COSTS

We incurred pre-tax costs totaling $17.9 million in 2022, primarily in the second quarter, for the derecognition of net assets, the cumulative translation adjustment for legal entities deemed substantially liquidated, and to record provisions for employee severance and legal contingencies.

Of the $17.9 million incurred, approximately $9.2 million represents non-cash charges and is reflected as such in the Consolidated Statement of Cash Flows.

The costs were primarily related to our segments, as follows:

Intelligent Operating Solutions $14.4 million, Precision Technologies $2.2 million and Advanced Healthcare Solutions $1.3 million.

INTEREST COSTS

1 unchanged sentence

Interest expense, net of $98.3 million was recorded during 2022 compared to $103.2 million during 2021 and $148.5 million during 2020.

Year-over-year interest expense decreased in 2021 and increased in 2020 due to changes in year-over-year average debt balances.

Year-over-year interest expense decreased in 2022 due to lower year-over-year effective interest rates on debt instruments, despite overall higher debt balances and rising interest rates.

This decrease was primarily driven by lower non-cash interest expense on the Convertible Senior Notes when compared to 2021, given the notes were settled in the first quarter of

Year-over-year interest expense decreased in 2021 due to changes in year-over-year average debt balances.

In the event that additional liquidity is required, particularly in connection with acquisitions, we may enter into additional borrowings under our commercial paper programs or credit facilities, and/or access the capital markets.

16 unchanged sentences

federal, state, and foreign jurisdictions.

Our ability to obtain a tax benefit in certain countries that continue to have lower statutory tax

Table of Conten t s

rates than the United States is dependent on our levels of taxable income in such foreign countries.

Our ability to obtain a tax benefit in certain countries that continue to have lower statutory tax rates than the United States is dependent on our levels of taxable income in such foreign countries.

We believe that a change in the statutory tax rate of any individual foreign country would not typically have a material effect on our financial statements given the geographic dispersion of our taxable income.

8 unchanged sentences

The Company will continue to monitor and evaluate the impact of OECD policy changes.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which, among other provisions, implements a 15% corporate alternative minimum tax on book income on corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion.

This provision is effective for tax years beginning after December 31, 2022.

Based upon our analysis of the Inflation Reduction Act of 2022 and subsequently released guidance, we do not believe the corporate alternative minimum tax will have a material impact on our financial statements.

For a discussion of risks related to these and other tax matters, please refer to “Item 1A.

3 unchanged sentences

Our effective tax rate for 2022 differs from the U.S.

federal statutory rate of 21% due primarily to the positive and negative effects of the TCJA, U.S.

federal permanent differences, the impacts of credits and deductions provided by law, including those associated with state income taxes, an increase to in our uncertain tax positions relating to higher interest rates, and the effect of Russia exit and wind down costs for which no tax benefit was recognized.

Our effective tax rate for 2021 differs from the U.S.

federal statutory rate of 21% due primarily to the effect of the TCJA, U.S.

7 unchanged sentences

The Debt-for-Equity Exchange included an exchange of all of our Vontier common stock owned as of December 31, 2020.

Our effective tax rate for 2019 differs from the U.S.

federal statutory rate of 21% due primarily to the effect of the TCJA U.S.

federal permanent differences, the impact of credits and deductions provided by law, and earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S.

federal statutory rate.

COMPREHENSIVE INCOME

Comprehensive income increased by $50 million in 2022 as compared to 2021, primarily due to an increase in net income of $147 million and favorable changes in pension benefit adjustments of $13 million, partially offset by unfavorable changes in foreign currency translation adjustments of $110 million.

Comprehensive income decreased by $1.1 billion in 2021 as compared to 2020, due to a decrease in net earnings of $1.0 billion, including both continuing and discontinued operations, unfavorable changes in foreign currency translation adjustments of $132 million, and favorable changes in pension benefit adjustments of $38 million.

The decrease in net earnings was due to the recognition of a $1.1 billion unrealized gain on the Retained Vontier Shares in 2020.

Comprehensive income increased by $895 million in 2020 as compared to 2019, due to an increase in net earnings of $874 million, including both continuing and discontinued operations, favorable changes in foreign currency translation adjustments of $13 million, and favorable changes in pension benefit adjustments of $8 million.

The increase in net earnings from 2019 to 2020 was due to the recognition of a $1.1 billion unrealized gain on the Retained Vontier Shares.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

We are exposed to market risk from changes in interest rates, foreign currency exchange rates, credit risk and commodity prices, each of which could impact our financial statements.

We generally address our exposure to these risks through our

Table of Conten t s

normal operating and financing activities.

We generally address our exposure to these risks through our normal operating and financing activities.

In addition, our broad-based business activities help to reduce the impact that volatility in any particular area or related areas may have on our operating profit as a whole.

4 unchanged sentences

As of December 31, 2022, an increase of 100 basis points in interest rates would have decreased the fair value of our fixed-rate long-term debt by approximately $79 million.

As of December 31, 2021, our variable-rate debt obligations consisted primarily of U.S.

dollar commercial paper and term loans (refer to Note 11 to the consolidated financial statements for information regarding our outstanding indebtedness as of December 31, 2021).

As of December 31, 2022, our variable-rate debt obligations consist of U.S.

dollar denominated commercial paper, U.S.

dollar denominated delay-draw term loan, and senior unsecured term facilities denominated in either Euros or Japanese Yen (refer to Note 11 to the consolidated financial statements for information regarding our outstanding indebtedness as of December 31, 2022).

As a result, our primary interest rate exposure results from changes in short-term interest rates.

As these shorter duration obligations mature, we anticipate issuing additional short-term commercial paper obligations and/or term loans to refinance all or part of these borrowings.

The annual effective rate associated with our outstanding U.S.

dollar denominated commercial paper and delayed-draw term loan was approximately 0.32% and 0.70%, respectively, and we recorded interest expense of $0.4 million on these variable-rate obligations.

As these shorter duration

obligations mature, we anticipate issuing additional short-term commercial paper obligations and/or term loans to refinance all or part of these borrowings.

The annual effective rate associated with our outstanding variable-rate obligation was approximately 2.04% with interest expense of $44.9 million.

On an annualized basis, a hypothetical 10 basis points increase in market interest rates as of December 31, 2022 on our variable-rate debt obligations as of December 31, 2022 would have increased our interest expense by $1.8 million in 2022.

10 unchanged sentences

dollar as of December 31, 2022 would have resulted in a reduction of foreign currency-denominated net assets and stockholders’ equity of approximately $181 million.

Currency exchange rates favorably impacted 2021 reported sales by 1.5% as compared to 2020, as the U.S.

dollar was, on average, weaker against most major currencies during 2021 as compared to exchange rate levels during 2020.

During the second quarter of 2022, we designated our ¥14.4 billion Yen-denominated variable interest rate term loan and our €275 million Euro-denominated variable interest rate term loan outstanding as net investment hedges of our investment in certain foreign operations.

Accordingly, foreign currency transaction gains or losses on the debt were deferred in the foreign currency translation component of Accumulated other comprehensive income (loss) (“AOCI”) as an offset to the foreign currency translation adjustments on our investments in foreign subsidiaries.

In 2022, we recognized after-tax losses of $5.1 million in Other comprehensive income (loss) related to the net investment hedges.

Currency exchange rates unfavorably impacted 2022 reported sales by 3.1% as compared to 2021, as the U.S.

dollar was, on average, stronger against most major currencies during 2022 as compared to exchange rate levels during 2021.

If the exchange rates in effect as of December 31, 2022 were to prevail throughout 2023, currency exchange rates would negatively impact 2023 estimated sales by approximately 0.3% relative to our performance in 2022.

In general, additional weakening of the U.S.

dollar against other major currencies would further positively impact our sales and results of operations on an overall basis and any strengthening of the U.S.

In general, additional strengthening of the U.S.

dollar against other major currencies would further negatively impact our sales and results of operations on an overall basis and any strengthening of the U.S.

dollar against other major currencies would adversely impact our sales and results of operations.

12 unchanged sentences

Risk Factors.”

Table of Conten t s

LIQUIDITY AND CAPITAL RESOURCES

3 unchanged sentences

federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), an emergency economic stimulus package in response to the COVID-19 outbreak which, among other things, contains numerous income tax provisions and short-term liquidity assistance measures.

During 2020, we deferred remittance of approximately $35 million in payroll tax payments with half subsequently remitted in December of 2021 and the remainder to be remitted in December of 2022 .

While COVID-19 has created volatility and uncertainty in the financial markets, we have not realized a significant impact on our financial position, liquidity, or ability to meet our debt covenants as of the filing date of this Report;

During 2020, we deferred remittance of approximately $35 million in payroll tax payments with half subsequently remitted in December of 2021 and the remainder remitted in December of 2022 .

While COVID-19 has created volatility and uncertainty in the financial markets, it has not had a significant impact on our financial position, liquidity, or ability to meet our debt covenants;

however, we continue to monitor the capital markets and general global economic conditions.

The financial markets worldwide, including the United States, have been impacted by COVID-19 and this volatility and disruption during the first half of 2020 impacted broad access to the capital markets and pricing on new indebtedness.

Our credit facilities, including our revolving credit facility, are predominately with institutions that we believe, to date, have been relatively unaffected by the disruption.

Our credit facilities, including our revolving credit facility, are predominately with institutions that we believe have been relatively unaffected by the disruption.

Due to the volatility and disruption in the commercial paper markets during the first six months of 2020, we temporarily reduced our reliance on this source of funding, and consequently paid down and refinanced our outstanding commercial paper with the Term Loan that was initially due March 2021 and was retired in the Debt-for-Equity Exchange.

1 unchanged sentence

2022 Financing and Capital Transactions

On February 15, 2022, the maturity date of the 0.875% Convertible Senior Notes due 2022, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

On June 17, 2022, we entered into a three-year, ¥14.4 billion senior unsecured term facility (“Yen Term Loan”).

On the same day, we drew and converted the entire available balance under the facility, which yielded net proceeds of $107 million.

The Yen Term Loan is due on June 17, 2025 and is pre-payable at our option.

The Yen Term Loan bears interest at a rate of Tokyo Term Risk Free Rate (“TORF”), plus 65 basis points;

provided, however, that the TORF may not be less than zero for the Yen Term Loan.

On June 21, 2022, we entered into a three-year €275 million senior unsecured term facility (“Euro Term Loan”).

On June 28, 2022, we drew and converted the entire available balance under the facility, which yielded net proceeds of $290 million.

The Euro Term Loan is due on June 23, 2025 and is pre-payable at our option.

The Euro Term Loan bears interest at a rate of Euro Interbank Offered Rate (“Euribor”), plus 55 basis points;

provided, however that the Euribor may not be less than zero for the Euro Term Loan.

On October 18, 2022, we entered into a second amended and restated credit agreement (the “Amended and Restated Credit Agreement”) extending the availability period of the Revolving Credit Facility to October 18, 2027 with an additional two one year extension options at our request and with the consent of the lenders.

The Amended and Restated Credit Agreement also contains an option permitting us to request an increase in the amounts available under the Revolving Credit Facility of up to an aggregate additional $1.0 billion.

We are obligated to pay an annual facility fee for the Revolving Credit Facility of between 6.5 and 15 basis points varying according to our long-term debt credit rating.

Borrowings under the new Revolving Credit Facility in U.S Dollars bear interest at a rate equal, at our option, to either (1) Term Secured Overnight Financing Rate (“Term SOFR”), plus a 10 basis points Credit Spread Adjustment (“CSA”) plus a margin of between 68.5 and 110.0 basis points, depending on our long-term debt credit rating or (2) the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR plus 100 basis points and (d) 1.0%, plus in each case a margin between zero and 10 basis points depending on our long-term debt credit rating.

In addition, beginning with our 2023 performance relative to our annual greenhouse gas reduction targets, the interest rate on any borrowings can increase or decrease by 4.0 basis points and the facility fee can increase or decrease by 1.0 basis points, for a maximum impact of an increase or decrease of 5.0 basis points.

The Amended and Restated Credit Agreement requires us to maintain a consolidated net leverage ratio of debt to consolidated EBITDA (as defined in the Credit Agreement) of less than 3.5 to 1.0.

The maximum consolidated net leverage ratio will be increased to 4.0 to 1.0 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by us in which the purchase price exceeds $250 million.

The Amended and Restated Credit Agreement also contains customary representations, warranties, conditions precedent, events of default, indemnities, and affirmative and negative covenants.

As of December 31, 2022, we were in compliance with all covenants under the Amended and Restated Credit Agreement.

The Amended and Restated Credit Agreement continued to provide credit support for the commercial paper programs, which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes.

On October 18, 2022, we entered into a term loan credit agreement, which provides for a 364-day delayed-draw term loan facility up to an aggregate principal amount of $1.0 billion.

Borrowings under the Delayed-Draw Term Loan facility may be Base Rate Loans, Term Secured Overnight Financing Rate (“Term SOFR”) Loans, or SOFR Daily Floating Rate Loans and bears interest as follows:

(1) Term SOFR Loans bear interest at a variable rate equal to Term SOFR plus a Credit Spread Adjustment of 10 basis point plus a spread of between 82.5 and 107.5 basis point, depending on the Company’s long-term credit rating;

(2) SOFR Daily Floating Rate Loans, like Term SOFR Loans, bear interest at a variable rate equal to Term SOFR with a one month period plus a Credit Spread Adjustment of 10 basis point plus a spread of between 82.5 and 107.5 basis point, depending on the Company’s long-term credit rating;

and (3) Base Rate Loans bear interest at the highest of (a) the Federal funds rate plus 50 basis points, (b) the prime rate, (c) Term SOFR with a one month period plus 100 basis points and (d) 1.0%, plus in each case a margin between zero and 7.5 basis points depending on our long-term debt credit rating.

On December 15, 2022, we drew down the full $1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”) as a Term SOFR Loan.

The repayment of the principal is due on December 14, 2023.

Fortive concurrently repaid the $1.0 billion in outstanding principal of the Delayed-Draw Term Loan due 2022 and accrued interest thereon.

Borrowings under the Delayed-Draw Term Loan Due 2023 are prepayable at our option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.

2021 Financing and Capital Transactions

On January 19, 2021, we completed a noncash exchange (the “Debt-for-Equity Exchange”) of 33,507,410 shares of common stock of Vontier, representing all of the Retained Vontier Shares, for $1.1 billion in aggregate principal amount of indebtedness of the Company held by Goldman Sachs & Co., including (i) all $400 million in term loan outstanding under the $750 million delayed draw term loan facility (“Term Loan due March 2021”) and (ii) $683.2 million of the $1.0 billion in term loan outstanding under the $1.0 billion delayed draw term loan facility (“Term Loan due May 2021”).

1 unchanged sentence

The fees associated with the prepayment were immaterial.

On February 9, 2021, we repurchased $281 million of the 0.875% Convertible Senior Notes due 2022 (the “Convertible Notes”) using the remaining cash proceeds received from Vontier in the Separation and other cash on hand.

On February 9, 2021, we repurchased $281 million of the Convertible Notes using the remaining cash proceeds received from Vontier in the Separation and other cash on hand.

In connection with the repurchase, we recorded a loss on extinguishment of $104.9 million in the first quarter of 2021.

5 unchanged sentences

In August 2021, we resumed borrowing under our Commercial Paper Program to fund, in part, acquisition activities.

Table of Conten t s

On December 16, 2021, we entered into a term loan credit agreement, which provides for a 364-day delayed-draw term loan facility up to an aggregate principal amount of $1.0 billion.

7 unchanged sentences

Borrowings under the Delayed-Draw Term Loan facility are prepayable at the Company’s option in whole or in part without premium or penalty and amounts borrowed may not be reborrowed once repaid.

Subsequent Event

On February 15, 2022, the maturity date of the Convertible Notes, Fortive repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

2020 Financing and Capital Transactions

3 unchanged sentences

Credit support for the Commercial Paper Programs is provided by a five-year $2.0 billion senior unsecured revolving credit facility that expires on November 30, 2023 (the “Revolving Credit Facility”) which, to the extent not otherwise providing credit support for the commercial paper programs, can also be used for working capital and other general corporate purposes.

As of December 31, 2021, no borrowings were outstanding under the Revolving Credit Facility.

On April 24, 2020, we amended (the “Amendments”) the credit agreement for each of our (i) $500 million delayed draw term loan facility, which has been repaid as of December 31, 2020 (“2020 Term Loan”), (ii) Term Loan Due May 2021, with $1.0 billion in principal amount outstanding as of December 31, 2020, (iii) Term Loan due March 2021, with $400 million in principal amount outstanding as of December 31, 2020, and (iv) $2.0 billion Revolving Credit Facility, with no borrowings thereunder as of December 31, 2020 as follows:

4 unchanged sentences

In addition, with respect to the Revolving Credit Facility and for any Adjusted Four Quarters in which the consolidated net leverage ratio is greater than the Unadjusted Maximum Ratio, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 80.5 and 117.5 basis points to a range of 118.0 and 155.0 basis points and for any base rate loans from a range of 0.0 and 17.5 basis points to a range of 18.0 and 55.0 basis points.

Furthermore, with respect to the Term Loan Due May 2021, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase

Table of Conten t s

from a range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.

• From April 24, 2020 to December 31, 2021, the maximum principal amount of secured indebtedness, other than certain types of secured indebtedness expressly permitted under each credit agreement, is decreased from 15% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries) to 11.25% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries).

Furthermore, with respect to the Term Loan Due May 2021, the applicable margin (as determined based on our long-term debt credit rating) for any LIBOR rate loans will increase from a range of 75.0 and 97.5 basis points to a range of 155.0 and 180.0 basis points and for any base rate loans from 0.0 to a range of 55.0 and 80.0 basis points.

11.25% of our consolidated net assets (when added together with indebtedness incurred or guaranteed by any of our subsidiaries).

In connection with the Amendments, we incurred approximately $6.5 million of fees.

22 unchanged sentences

In connection with the transaction, we wrote-off the remaining unamortized deferred financing costs of $0.7 million and recorded a loss on extinguishment of $8 million.

2019 Financing and Capital Transactions

During 2019, we completed the following financing and capital transactions:

• On February 22, 2019, we issued $1.4 billion in aggregate principal amount of our Convertible Notes, including $187.5 million in aggregate principal amount resulting from an exercise in full of an over-allotment option.

The Convertible Notes were sold in a private placement to certain initial purchasers for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

The Convertible Notes bear interest at a rate of 0.875% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019.

The Convertible Notes mature on February 15, 2022, unless earlier repurchased or converted in accordance with their terms prior to such date.

As a result of the Separation and in accordance with the anti-dilution provisions of the Convertible Notes, effective October 9, 2020, the Convertible Notes are convertible into shares of our common stock at an adjusted conversion rate of 10.9568 shares per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of $91.27 per share), subject to future adjustment upon the occurrence of certain events.

Upon conversion of the Convertible Notes, holders will receive cash, shares of our common stock, or a combination thereof, at Fortive’s election.

Our current intention is to settle such conversions through cash up to the principal amount of the converted Convertible Notes and, if applicable, through shares of our common stock for conversion value, if any, in excess of the principal amount of the converted Convertible Notes.

Table of Conten t s

Of the $1.4 billion in proceeds received from the issuance of the Convertible Notes, $1.3 billion was classified as debt and $102.2 million was classified as equity, using an assumed effective interest rate of 3.38%.

Debt issuance costs of $24.3 million were proportionately allocated to debt and equity.

The discount at issuance was $102.2 million and is being amortized over a three-year period.

• On February 28, 2019, we prepaid the remaining $400.0 million outstanding principal and accrued interest under the Delayed-Draw Term Loan due 2019.

The prepayment fees associated with this payment were immaterial.

• On March 1, 2019, we entered into a credit facility agreement that provides for a 364-day delayed-draw term loan facility (“Term Loan due May 2021”) in an aggregate principal amount of $1.0 billion.

On March 20, 2019, we drew down the full $1.0 billion available under the Term Loan due May 2021 in order to fund, in part, the ASP acquisition.

The original maturity date of the Term Loan due May 2021 was February 28, 2020;

however on February 25, 2020, we extended the maturity date to August 28, 2020.

The Term Loan due May 2021 was prepayable at our option.

We are not permitted to re-borrow once the term loan is repaid.

The terms and conditions, including covenants, applicable to the Term Loan due May 2021 are substantially similar to those applicable to the Revolving Credit Facility.

• On June 15, 2019 we repaid the remaining outstanding principal of $55.3 million of our 1.80% senior unsecured notes.

• On October 25, 2019, we entered into a credit facility agreement that provides for a 364-day term loan facility (“2020 Term Loan”) in an aggregate principal amount of $300 million.

On October 25, 2019, we drew down the full $300 million available under the 2020 Term Loan in order to fund, in part, the Censis acquisition.

We subsequently increased the size of this facility by $200 million on November 8, 2019 and drew the additional amount on the same day resulting in an outstanding amount of $500 million.

The 2020 Term Loan was due on October 23, 2020 and prepayable at our option.

On February 26, 2020, we prepaid $250 million of the 2020 Term Loan and on October 9, 2020, we repaid the remaining $250 million of the 2020 Term Loan.

The fees associated with both prepayments were immaterial.

We are not permitted to re-borrow once the term loan is repaid.

The terms and conditions, including covenants, applicable to the 2020 Term Loan are substantially similar to those applicable to the Revolving Credit Facility.

Overview of Cash Flows and Liquidity

5 unchanged sentences

Payments for additions to property, plant and equipment (95.8) (50.0) (75.7)

Proceeds from sale of property 4.5 5.3 —

Proceeds from sale of business and property 9.6 4.5 5.3

All other investing activities (3.5) — —

Total investing cash used in continuing operations $ (102.5) $ (2,615.6) $ (110.8)

Proceeds from borrowings (maturities longer than 90 days), net of issuance costs $ 1,394.1 $ 999.8 $ 741.7

Net proceeds from (repayments of) commercial paper borrowings 38.5 364.9 (1,141.9)

Proceeds from borrowings (maturities greater than 90 days), net of $0.3 million and $8 million of issuance costs in 2021 and 2020, respectively

999.8 741.7 2,913.2

Payment of 0.875% convertible senior notes due 2022 (1,156.5) — —

Repurchase of common shares (442.9) — —

Repayment of borrowings (maturities greater than 90 days) (1,000.0) (611.1) (1,730.8)

5 unchanged sentences

Operating Activities

Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, pension funding, and other items impact reported cash flows.

Table of Conten t s

Operating cash flows from continuing operations can fluctuate significantly from period-to-period as working capital needs and the timing of payments for income taxes, interest, pension funding, and other items impact reported cash flows.

Operating cash flows from continuing operations were approximately $1.3 billion in 2022, representing an increase of $310 million, or approximately 31%, as compared to 2021, and primarily attributable to the following factors:

• Year-over-year increase of $219 million in Operating cash flow from net earnings from continuing operations, net of non-cash items (Amortization, Depreciation, Stock-based compensation, Loss on extinguishment of debt, Gain on investment in Vontier Corporation, Gain on litigation resolution, and Russia exit and wind down costs).

• The aggregate changes in accounts receivable, inventories, and trade accounts payable used $11 million of cash during 2022 compared to using $64 million of cash during 2021.

The amount of cash flow generated from or used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which generally represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.

• The aggregate change in prepaid expenses and other assets, accrued expenses and other liabilities, and changes in deferred income taxes used $10 million of cash in 2022 as compared to using $47 million in 2021.

The year-over-year changes were driven by timing differences in tax payments and employee compensation and benefits.

Operating cash flows from continuing operations were approximately $993 million in 2021, an increase of $15 million, or approximately 2%, as compared to 2020.

1 unchanged sentence

• 2021 operating cash flows were impacted by lower net earnings from continuing operations as compared to 2020, which were driven by a year-over-year increase in operating profits of $273 million, a decrease in interest expense of $45 million associated with the net repayment of debt, a gain on the Retained Vontier Shares of $57 million and a gain on litigation resolution of $30 million, which were partially offset by the loss on extinguishment of debt of $105 million.

The gain on the Retained Vontier Shares and litigation dismissal, and substantially all of the loss on the extinguishment of debt, are noncash items that impact net earnings without a corresponding impact to operating cash flows.

• The aggregate of accounts receivable, inventories, and trade accounts payable used $64 million of cash during 2021 compared to providing $93 million of cash during 2020.

The gain on the Retained Vontier Shares and litigation dismissal, and substantially all of the loss on the

extinguishment of debt, are noncash items that impact net earnings without a corresponding impact to operating cash flows.

• The aggregate of accounts receivable, inventories, and trade accounts payable used $64 million of operating cash flows during 2021 compared to providing $93 million of cash during 2020.

During 2021 we experienced an increase in inventory due, in part, to higher safety stock levels, which were increased to buffer the impact of supply chain and logistics challenges and to fulfill customer demand.

• The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities used $6 million of cash in 2021 as compared to providing $208 million in 2020 with year-over-year change largely driven by the funding of a $28 million deferred compensation liability, which was associated with the ServiceChannel acquisition and was paid into escrow upon closing of the transaction, as well as other routine changes in various compensation and benefit payments.

Operating cash flows from continuing operations were approximately $978 million in 2020, an increase of $276 million, or approximately 39%, as compared to 2019.

This year-over-year change in operating cash flows from continuing operations was primarily attributable to the following factors:

• 2020 operating cash flows were impacted by higher net earnings from continuing operations as compared to 2019, which were driven by a year-over-year increase in operating profits of $96 million and a year-over-year increase in interest expense of $6 million primarily associated with our financing activities.

The year-over-year increase in operating profit was partially offset by an increase in depreciation and amortization expenses of $43 million largely attributable to our recently acquired businesses.

Further, the year-over-year increase in net earnings for 2020 was impacted by the recognition of a $1.1 billion unrealized gain on the Retained Vontier Shares.

Depreciation, amortization, and the unrealized gain are noncash expenses that impact earnings without a corresponding impact to operating cash flows.

• The aggregate of accounts receivable, inventories, and trade accounts payable provided $93 million of operating cash flows during 2020 compared to using $59 million of cash during 2019.

The amount of cash flow generated from or used by the aggregate of accounts receivable, inventories, and trade accounts payable depends upon how effectively we manage the cash conversion cycle, which effectively represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers, and can be significantly impacted by the timing of collections and payments in a period.

• The aggregate of prepaid expenses and other assets and accrued expenses and other liabilities provided $208 million of cash in 2020 as compared to providing $148 million in 2019.

The year over year change was largely driven by the timing of tax payments and various employee benefit accruals.

• The aggregate of prepaid expenses and other assets, accrued expenses and other liabilities, and changes in deferred income taxes used $47 million of cash in 2021 as compared to providing $110 million in 2020 with year-over-year change largely driven by the funding of a $28 million deferred compensation liability, which was associated with the ServiceChannel acquisition and was paid into escrow upon closing of the transaction, as well as other routine changes in various compensation and benefit payments.

Investing Activities

Investing cash flows from continuing operations consist primarily of cash paid for acquisitions and capital expenditures.

Net cash used in investing activities from continuing operations was approximately $2.6 billion during 2021 compared to approximately $0.1 billion and $4.0 billion of net cash used in 2020 and 2019, respectively.

The increase in investing cash flows was driven by the acquisitions of ServiceChannel and Provation, which totaled approximately $2.6 billion, partially offset by a year-over-year decrease in capital expenditures of $26 million.

The reduction in capital expenditures was largely due to higher spending in the comparable period in 2020, which was related to the integration of the ASP business.

For a discussion of our acquisitions refer to “—Overview.”

Capital expenditures are made primarily for increasing capacity, replacing equipment, supporting product development initiatives, improving information technology systems, and purchasing equipment that is used in revenue arrangements with customers.

Net cash used in investing activities from continuing operations was approximately $103 million during 2022 compared to approximately $2.6 billion and $110.8 million of net cash used in 2021 and 2020, respectively.

The decrease in investing cash flow during 2022 as compared to 2021 was driven by our acquisition of ServiceChannel and Provation in 2021, which was partially offset by increased capital expenditures of approximately $46 million in 2022.

The reduction in cash used for investing cash flows in 2021 as compared to 2020 was driven by the acquisitions of ServiceChannel and Provation, which occurred in 2021 and totaled approximately $2.6 billion, partially offset by a year-over-year decrease in capital expenditures of $26 million.

Capital expenditures are made primarily for increasing capacity, replacing aged equipment, supporting product development initiatives for hardware and software offerings, improving information technology systems, and purchasing equipment used in revenue arrangements with customers.

Capital expenditures totaled $96 million in 2022, $50 million in 2021, and $76 million in 2020.

We expect capital

Table of Conten t s

spending to be between approximately $80 million and $100 million in 2022, though actual expenditures will ultimately depend on business conditions.

We expect capital spending to be between approximately $90 million and $110 million in 2023, though actual expenditures will ultimately depend on business conditions.

Financing Activities and Indebtedness

Financing cash flows from continuing operations consist primarily of cash flows associated with the issuance of equity, the issuance and repayments of debt and commercial paper, payments of quarterly cash dividends to common and preferred shareholders, and cash consideration received from the Vontier Separation.

Financing activities from continuing operations generated cash of $652 million in 2021 compared to using $676 million and generating $2.8 billion of cash in 2020 and 2019, respectively.

Financing activities from continuing operations used cash of $1.3 billion in 2022, generated cash of $652 million in 2021 and used cash of $676 million in 2020.

On February 17, 2022, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 20 million shares of the Company's outstanding common stock from time to time on the open market or in privately negotiated transactions.

There is no expiration date for the repurchase program, and the timing and amount of repurchases under the program are determined by the Company's management based on market conditions and other factors.

The repurchase program may be suspended or discontinued at any time by the Board of Directors.

Financing activities from continuing operations during 2022 reflected the following transactions:

• On June 17, 2022, we entered into a three-year, ¥14.4 billion Yen Term Loan.

On the same day, we drew and converted the entire available balance under the facility, which yielded net proceeds of $107 million.

• On June 21, 2022, we entered into a three-year €275 million Euro Term Loan.

On June 28, 2022, we drew and converted the entire available balance under the facility, which yielded net proceeds of $290 million.

• On February 15, 2022, the maturity date of the Convertible Notes, we repaid, in cash, $1.2 billion in outstanding principal and accrued interest thereon.

• On October 18, 2022, we entered into a term loan credit agreement, which provides for a 364-day delayed draw term loan facility up to an aggregate principal amount of $1.0 billion.

On December 15, 2022, we drew down the full $1.0 billion delayed-draw senior unsecured term facility (“Delayed-Draw Term Loan Due 2023”) as a Term SOFR Loan.

The repayment of the principal is due on December 14 2023.

We concurrently repaid the $1.0 billion in outstanding principal of the Delayed-Draw Term Loan due 2022 and accrued interest thereon.

• During 2022, we increased borrowings by $39 million in net commercial paper under the U.S.

dollar-denominated commercial paper program.

As of December 31, 2022, the commercial paper borrowings had a weighted average annual effective rate of 4.80% and a weighted average maturity of approximately 32 days.

• During 2022, we repurchased 7 million shares of our outstanding common stock for approximately $443 million under our publicly-announced share repurchase program.

• During 2022, we made dividend payments to common shareholders totaling $99.5 million.

In 2021, we repaid the remaining $317 million outstanding on the Delayed-Draw Term Loan Due 2020, repurchased $281 million of the 0.875% Convertible Senior Notes due 2022, and resumed borrowing under our Commercial Paper Programs, with proceeds being used for acquisitions and general corporate purposes.

During the year ended December 31, 2021, we paid $132 million of cash dividends to common shareholders and holders of our MCPS.

In 2020, we repaid $1.1 billion related to the issuance of commercial paper under the Commercial Paper Program, received proceeds from borrowings of $742 million, repaid $1.7 billion of borrowings, and paid $163 million of cash dividends to shareholders.

Refer to “—Liquidity and Capital Resources” section above for a description of our financing activities in 2022, 2021, and 2020.

4 unchanged sentences

The availability of the Revolving Credit Facility as a standby liquidity facility to repay maturing commercial paper is an important factor in maintaining the existing credit ratings of the Commercial Paper Programs when we have outstanding borrowings.

As of December 31, 2021, we had $0.4 million borrowings outstanding under our Commercial Paper Program.

As of December 31, 2022 and December 31, 2021, we had $405 million and $365 million borrowings outstanding under our Commercial Paper Program, respectively.

We expect to limit any future borrowings under the Revolving Credit Facility to amounts that would leave sufficient credit available under the facility to allow us to borrow, if needed, to repay any outstanding commercial paper as it matures.

Subsequent Event

The repurchase program may be suspended or discontinued at any time by the Board of Directors.

On November 3, 2022, we declared a regular quarterly dividend of $0.07 per common share paid on December 30, 2022 to holders of record on November 30, 2022.

Aggregate cash payments for both common and MCPS dividends paid to shareholders during the year ended December 31, 2021 were $132 million and were recorded as dividends to shareholders in the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows.

Subsequent Event

On January 24, 2023 we declared a regular quarterly cash dividend of $0.07 per share payable on March 31, 2023 to common stockholders of record on February 24, 2023.

Cash and Cash Requirements

As of December 31, 2021, we held approximately $819.3 million of cash and cash equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less.

As of December 31, 2022, we held approximately $0.7 billion of cash and cash equivalents that were invested in highly liquid investment-grade instruments with a maturity of 90 days or less.

The annual effective rate was immaterial.

Approximately 16% of our cash at December 31, 2022 was held in the U.S.

Table of Conten t s

We have cash requirements to support working capital needs, capital expenditures and acquisitions, pay interest and service debt, pay taxes and any related interest or penalties, fund our pension plans as required, pay dividends to shareholders, and support other business needs or objectives.

With respect to our cash requirements, we generally intend to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, particularly in connection with acquisitions, we may also borrow under our commercial paper programs or credit facilities or enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under our commercial paper programs.

under our commercial paper programs.

We also may from time to time access the capital markets, including to take advantage of favorable interest rate environments or other market conditions.

We have made an assertion regarding the amount of current earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs.

Foreign cumulative earnings remain subject to foreign remittance taxes.

We have made an election regarding the amount of earnings that we do not intend to repatriate due to local working capital needs, local law restrictions, high foreign remittance costs, previous investments in physical assets and acquisitions, or future growth needs.

For most of our foreign operations, we make an assertion regarding the amount of earnings in excess of intended repatriation that are expected to be held for indefinite reinvestment.

24 unchanged sentences

However, the timing of these liabilities is uncertain, and therefore, they have been included in the “due later than one year from December 31, 2022” column.

The amounts also includes our obligation under the TCJA for the transition tax on cumulative foreign earnings and profits, which we expect to pay over eight years.

The amounts also include our obligation under the TCJA for the transition tax on cumulative foreign earnings and profits, which we expect to pay over eight years.

Refer to Note 14 to the consolidated financial statements for additional information on unrecognized tax benefits.

1 unchanged sentence

These guarantees are not recorded on our balance sheet and $41 million in commitments expire within one year of December 31, 2022 and $17 million later than one year from December 31, 2022.

Table of Conten t s

During 2022, we contributed $2 million and $11 million to our U.S.

27 unchanged sentences

We regularly perform detailed reviews of our trade accounts and unbilled receivable portfolios to determine if changes in the aforementioned qualitative and quantitative factors have impacted the adequacy of the allowances.

Volatility and uncertainty in overall global economic conditions and worldwide capital markets as a result of the COVID-19 pandemic may negatively impact our customers’ ability to pay and, as a result, may increase the difficulty in collecting trade accounts and unbilled receivables.

We did not realize notable increases in loss rates and delinquencies during the year ended December 31, 2021, and given the nature of our portfolio of receivables, our historical experience during times of challenging economic conditions, and our forecasted future impact of COVID-19 on our customer’s ability to pay, we did not record material provisions for credit losses as a result of the COVID-19 pandemic during the year ended December 31, 2021.

Volatility and uncertainty in overall global economic conditions and worldwide capital markets may negatively impact our customers’ ability to pay and, as a result, may increase the difficulty in collecting trade accounts and unbilled receivables.

We did not realize notable increases in loss rates and delinquencies or record material provisions for credit losses during the year ended December 31, 2022 or 2021.

If the financial condition of our customers were to deteriorate beyond our current estimates, resulting in an impairment of their ability to make payments, we would be required to write-off additional receivable balances, which would adversely impact our net earnings and financial condition.

In order to evaluate the sensitivity of the estimates used in the calculation of our allowance, we applied a hypothetical 10% decrease in anticipated collectability, noting that our allowance would increase by $4 million with a corresponding charge to SG&A.

Expected credit losses of the assets originated during the year ended December 31, 2022, as well as changes to expected losses during the same periods, are recognized in earnings for the year ended December 31, 2022.

Table of Conten t s

Inventories :

3 unchanged sentences

If actual market conditions are less favorable than those we projected, we could be required to reduce the value of our inventory, which would adversely impact our financial statements.

In order to evaluate the sensitivity of the estimates used in the calculation of the net realizable value of our inventory, we applied a hypothetical 10% decrease to the anticipated realization, noting that our inventory would decrease by $7 million with a corresponding charge to Cost of goods sold.

In order to evaluate the sensitivity of the estimates used in the calculation of the net realizable value of our inventory, we applied a hypothetical 10% decrease to the anticipated realization, noting that our inventory would decrease by approximately $6 million with a corresponding charge to Cost of goods sold.

Refer to Note 5 to the consolidated financial statements for detailed information regarding our inventory balances as of December 31, 2022.

Acquired Intangibles and Goodwill :

Our business acquisitions typically result in the recognition of goodwill, in-process R&D, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur.

Our business acquisitions typically result in the recognition of goodwill, developed technology, and other intangible assets, which affect the amount of future period amortization expense and possible impairment charges that we may incur.

Refer to Notes 2, 3 and 7 to the consolidated financial statements for a description of our policies relating to goodwill, acquired intangibles, and acquisitions.

5 unchanged sentences

There are inherent uncertainties related to these assumptions and management’s judgment in applying them to the analysis of goodwill impairment.

In 2021, we had five reporting units for goodwill impairment testing in continuing operations.

In 2022, we performed goodwill impairment testing for our reporting units.

Reporting units resulting from recent acquisitions generally present the highest risk of impairment.

14 unchanged sentences

We recognize a liability for any contingency that is known or probable of occurrence and reasonably estimable.

These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of

Table of Conten t s

negotiations, the number of future claims, and the cost of both pending and future claims.

These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims, and the cost of both pending and future claims.

In addition, because most contingencies are resolved over long periods of time, liabilities may change in the future due to various factors, including those discussed in Note 16 to the consolidated financial statements.

4 unchanged sentences

In determining if control has transferred, we consider whether certain indicators of the transfer of control are present, such as the transfer of title, present right to payment, significant risks and rewards of ownership, and customer acceptance when acceptance is not a formality.

To determine the consideration that the customer owes us, we make judgments regarding the amount of customer allowances and rebates, consisting primarily of volume discounts and other short-term incentive programs.

To determine the consideration that the customer owes us, we make judgments regarding the amount of customer allowances and rebates, consisting primarily of

volume discounts and other short-term incentive programs.

Refer to Note 2 to the consolidated financial statements for a description of our revenue recognition policies.

26 unchanged sentences

We evaluate the realizability of deferred income tax assets for each of the jurisdictions in which we operate.

If we experience cumulative pretax income in a particular jurisdiction in the three-year period including the current and prior two years, we normally conclude that the deferred income tax assets will more likely than not be realizable and no valuation allowance is recognized,

Table of Conten t s

unless known or planned operating developments would lead management to conclude otherwise.

However, if we experience cumulative pretax losses in a particular jurisdiction in the three-year period including the current and prior two years, we then consider a series of factors in the determination of whether the deferred income tax assets can be realized.

3 unchanged sentences

We recognize tax benefits from uncertain tax positions only if, in our assessment, it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

The tax benefits

recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Judgment is required in evaluating tax positions and determining income tax provisions.

8 unchanged sentences

Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings, and court decisions and the expiration of statutes of limitations reserves for contingent tax liabilities are accrued or adjusted as necessary.

An increase in our 2021 effective tax rate of 1.0% would have resulted in an additional income tax provision for the fiscal year ended December 31, 2021 of $7 million.

An increase in our 2022 effective tax rate of 1.0% would have resulted in an additional income tax provision for the year ended December 31, 2022 of approximately $9 million.

NEW ACCOUNTING STANDARDS

3 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Table of Conten t s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis